Was the silver crash really that predictable?

[theo]

http://www.321gold.com/editorials/hamil ... 51611.html

"In a single week, the manic euphoria gripping silver recently was utterly obliterated. After promising such rapid wealth creation, this metal collapsed in what can only be described as a near-crash. New investors were left stunned, while leveraged speculators were slaughtered. Sadly, they could have easily avoided these devastating losses. Silver’s massive reversal was both inevitable and predicted well in advance. . . . "

Its interesting how so many online bloggers saw this crash coming. Its so easy to forget that in late April the dollar dipped below 73 and the possibility of it crashing further was real. We knew that PIMCO had sold all of its U.S. debt and of the S & P warning that the U.S. could lose its AAA status in the near future. Regardless of what these "geniuses" say, I believe we were one negative (Chinese?) statement away from a full on currency crisis. The regulators knew this; hence their aggressive reaction. Having said that, I should have known the banks/government would defend the $50 level with everything they had.

[Lemon Thrower]

it was not predictable.

all of the folks who actually saw it coming also saw it coming at 28.

the markets are very random. Taleb, author of Black Swan, says humans mentally oversimplify the markets in at least 2 ways. First, we fool ourselves into thinking they behave more predictably than they really do. Second, we backward rationalize. Take WWI for example. After the fact, there are legions of historians who explain how it was predictable, but it was anything but.

On the first point, he gives the example of a farmer who fattens a turkey for 3 years then slaughters it. if you graph the inputs of food vs weight of the turkey, its a perfect relationship right up until the turkey is slaughtered. We could have had a short squeeze that took silver to 75, 100, 200, but for the margin hikes. if you think about it, we are now close to where we were after bunker hunts corner failed due to the exchanges changing the rules, except that we are going back up.

[Mossy]

Many thought that someone in the power structure would try to find a way to prevent precious metals continuing their upward movement against the dollar, and thought there was no way for them to do so.

I knew how the 1980 spike got clipped, but did not they would use it until silver or gold was higher.

Clipping the movement this soon meant that the manipulation was not known by as many people and fewer are likely to view it in a negative light. Reasonable, from their point of view. Still, I don't see how they can cause a trough as we saw from 1984 to 2006, that was probably a loosening of the regulations regarding fractional bullion banks, or something similar, allowing more people to /think/ they have gold and silver held for them in a bullion vault.

[Pennysaved]

Not sure how many of you watch CNBC.

Early this AM the commodity expert was saying she thought this was tied to the end of QE2.

That a lot of people are anticipating the end of easy money in July and this is causing the sell off.

Not sure how true that really is.

[theo]

Not sure how many of you watch CNBC.

Early this AM the commodity expert was saying she thought this was tied to the end of QE2.

That a lot of people are anticipating the end of easy money in July and this is causing the sell off.

Not sure how true that really is.

That analysis is not entirely inaccurate, although it is kind of a pat answer. I hope she's not giving such a simplistic explanation to her high paying clients. The article I linked pointed out that silver has been subject to several violent sell-offs 1998, 2004 and 2006 in addition to the more well-known events of 1980, 2008 and 2011. Many other commodities such as gold, copper, nickel and oil have been subject to massive sell-offs (mostly in 2008), but none have done so as consistently as silver. The writer (Hamilton) never explained why this is so. Why is he missing the elephant in the room?

[coppertone]

The rise was too rapid and was attracting speculators. A selI-off or protective manipulation downward did seem likely. I was scared to buy and scared not to buy.

However, currently the market does not appear to acting or reacting logically. Fundamentals have not changed yet the dollar is rising. QE2 will end but then interest rates will rise and the government is still running on either borrowed or fictitious money. There does not appear to any reasonable way out of this situation. I am buying agressively again.

[Lemon Thrower]

The rise was too rapid and was attracting speculators. A selI-off or protective manipulation downward did seem likely.

That was also true from $18 to $28, but it didn't crash then, so your explanation is inadequate.

Fundamentals have not changed yet the dollar is rising.

Dollar is rising as the offset to the Euro. Euro fell upon rumors that Greece was leaving or that the IMF would restructure greek debt, i.e. force its holders (euro banks) to take a haircut.

[theo]

The rise was too rapid and was attracting speculators. A selI-off or protective manipulation downward did seem likely.

That was also true from $18 to $28, but it didn't crash then, so your explanation is inadequate.

To be fair there was a brief (and almost forgetten) 16% correction from 31 to 26, but then it shot almost uninterrupted to 49 in a matter of weeks. Sometimes I think that the regulators allowed that last leg of the run up to happen in order maximize damage to traders with over-leveraged positions, probably wiping some out.

[moparal7]

Many thought that someone in the power structure would try to find a way to prevent precious metals continuing their upward movement against the dollar, and thought there was no way for them to do so.

I knew how the 1980 spike got clipped, but did not they would use it until silver or gold was higher.

Clipping the movement this soon meant that the manipulation was not known by as many people and fewer are likely to view it in a negative light. Reasonable, from their point of view. Still, I don't see how they can cause a trough as we saw from 1984 to 2006, that was probably a loosening of the regulations regarding fractional bullion banks, or something similar, allowing more people to /think/ they have gold and silver held for them in a bullion vault.

Excellent post. The trough you refer to is the smart money accumulating. The long period is meant to keep the masses out of the market.Long , boring troughs or bases as I call them, don't interest the average investor.The smart money is buying at bargain prices and will make a killing in the long run.When john q public buys in that is when corrections, shakeouts,call it what u will, happen.

[Know Common Cents]

Call it the lemming mentality or those who are incapable of an independent thought, but the reason for the silver crash was silver's failure to crack through and sustain the $50/oz barrier. Anyone who has a modicum of intelligence knows that the 1980 version of $50/oz is far different than its 2011 counterpart. But, in true Borg-like style, silver suddenly lost its sexiness and the weak hands rushed to the exits.

That then begs the question why $50/oz presented such a barrier. Those who are in control (we all have names for them like the Illuminati, etc.) have the ability to expand and contract equities, commodities, forex, treasuries and anything else they want. There is, of course, collusion with the government on multiple levels to achieve the desired results du'jour.

Investors exited commodities and went into equities. Now stocks have been tarnished and there's a concerted effort to stabilize (or pump up) the dollar and pour cash into bonds. This whole thing isn't much different than a giant Wheel of Fortune and everyone gets a spin. The losers are hoodwinked into believing they've been pasted to the wall, but the fundamentals haven't changed. Silver and gold aren't allowed to remain in the public's crosshairs for too long lest they begin to doubt the very core of the American economy's soundness.

Electioneering is already being practiced and the senses of Joe and Josephine Sixpack are becoming cloudy. Stir in all of the weather catastrophies, flooding, etc., and there's much more to occupy one's thought if the spillway is draining in your direction.

Rely on yourself. You know what to do in these situations. Bring on the silver. Nothing like it. If you ever have any doubts about your dedication to the white metal, take a non-collectible silver dollar and drop it on a hard surface. Listen and repeat as often as needed to clear the fog out of your cabeza. I heard the silver ring very early in life and have never forgotten what it means--true financial independence.

[Treetop]

Rely on yourself. You know what to do in these situations. Bring on the silver. Nothing like it. If you ever have any doubts about your dedication to the white metal, take a non-collectible silver dollar and drop it on a hard surface. Listen and repeat as often as needed to clear the fog out of your cabeza. I heard the silver ring very early in life and have never forgotten what it means--true financial independence.

BRAVO!!!

[Mossy]

Excellent post. The trough you refer to is the smart money accumulating. The long period is meant to keep the masses out of the market.Long , boring troughs or bases as I call them, don't interest the average investor.The smart money is buying at bargain prices and will make a killing in the long run.When john q public buys in that is when corrections, shakeouts,call it what u will, happen.

Thank you.

So, someone from the end of the Roaring Twenties who dodged the Market crash said he knew it was time to get out when his boot black started talking about the best stocks to buy. About the same thing, then.

Blast. I knew this and still got nipped. Still ahead on dollar averaging, thankfully.

[Lemon Thrower]

that was Baruch who shorted the market when his shoe shine boy offered him a stock tip.

most people these days at cocktail parties aren't in the metals yet, let alone the masses.

take a look at the chart of silver or gold in the 70's and you'll see that these ups and downs are par for the course.

[BullionStar]

I wouldn't even use the word Crash. We need to remember that prices fell back to levels only around 6 or 7 weeks prior to the peak.

I have seen the recent Silver correction described as a more of a drive by shooting than a correction. Caused by the eviction of speculative money due to margin hikes on CME and elsewhere. Since then silver has made only one concerted break lower, which failed, and seems to be much more comfortable at $35ish.

[beauanderos]

Although to chartists, silver was technically overbought and ready for a pullback, I feel with the momentum which had built and was increasing, that silver, unimpeded by the brakes da boys applied, could easily have careened to the $60 to $70 level before seeing a retracement. The fact that a "crash" was predictable does not predicate the timing of that pullback and does not implicate that the move would inevitably occur at any particular dollar level. The eventual waterfall effect that occured was certainly exacerbated by the margin increases and probably increased shorting during the event along with seasonality. Hindsight is alway 100%.